The Ripest Asset Classes For Tokenization
Asset tokenization is set to take capital markets by storm. The process offers a number of key advantages which are set to revolutionize how we invest in and trade assets. Many asset classes can be tokenized but there are some assets which are ripe for tokenization because digitization brings advantages which are not otherwise possible. In this article, we take a look into the juiciest asset classes for tokenization and why they offer such significant advantages to investors.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble” ― Warren Buffett
The World Economic Forum estimates that the market for tokenized securities could be worth as much as $24 trillion within the next 6 years. This represents a significant portion of the global securities market. This growth is spurred by the advantages that digital securities offer over traditional securities. Some of the key advantages are:
- Global liquidity. Digital securities can be globally traded with anyone, anywhere, at any time. This brings significant liquidity to the marketplace.
- Fractionalization. Security tokens can be fractionalized into fragments allowing for greater participation by smaller investors.
- Safety. Security tokens are stored in digital wallets and because they are tied to an investor’s identity they can be returned to their rightful owners in the case of loss or theft. This stands in stark contrast to the issues surrounding custody of cryptocurrencies.
- Cost and speed. Security Token Offerings (STOs) are faster and cheaper to bring to market than traditional Initial Public Offerings (IPO).
There are several categories of asset that particularly lend themselves to being tokenized. These are usually asset classes that have high value but low liquidity. Tokenization helps to bring liquidity to these assets by allowing investors to invest in asset classes that have traditionally been out of reach for smaller investors.
- Wine. Switzerland’s new blockchain law will open up a number of asset class for tokenization and fine wines are the first. Fine wines appreciate in value over time but require careful storage and handling making them unsuitable for many smaller investors. Tokenization will open this interesting asset class to a wider investor base, while effective management will ensure the wines are kept in premium condition.
- Real estate. The world is beginning to realize the numerous benefits of tokenizing real estate. Beyond opening this valuable asset class to more investors and greater liquidity, there are significant advantages which tokenization offers. There are numerous touchpoints in the lifespan of a real estate contract and these can be streamlined through digitization. Rights such as voting and dividend payments can be programmed into the smart contracts which underpin security tokens.
- Luxury goods. High-value luxury goods such as premium sports cars are out of reach for most investors but are an asset class that offers significant returns. Tokenization will allow small investors to invest in these assets and benefit from the value inherent in their limited availability.
- Fine art. The art world can deliver a significant return on investment. In some parts of the world fine art is one of the top-performing asset classes and tokenization will bring ownership opportunities to the masses. Existing collections can be tokenized to deliver liquidity and return on investment to their owners while stipulating that the collections remain intact.
- Precious metals. There is an exciting market being created for tokenized precious metals. Investors have the opportunity to invest in precious metals without the issues associated with custody and management. Companies such as MetalStream are offering tokens which represent 1 gram of LBMA certified gold bullion. Gold can be redeemed in lots of 1KG while tokens can be continuously and globally traded. Gold is only the first of several precious metals that can be tokenized.
Tokenization is bringing advantages to all participants in the global securities market. The process of digitization will bring investment opportunities to the wider public that has previously been excluded from investing in certain asset classes.
We are expecting that our home region of Asia will represent the swiftest and widest adoption of digital securities. A cultural bias towards longterm investing, combined with a high rate of smartphone penetration, and the fact that 90% of the 2.4 billion new members of the emerging middle class will come from the region, make Asia an ideal market to adopt digital securities.
At Sonata Capital our goal is to make this adoption a reality in Asia and support the most vibrant companies in their tokenization endeavours. This will be an exciting market to participate in and for once these financial opportunities will not be limited to the wealthy.
The future is bright, the future is tokenized!
Sonata Capital is registered in the Labuan International Business & Financial Centre, and invests in companies successfully exploiting the vast opportunities of the digital economy.
100% of the equity in our funds have been tokenised, and will be listed on digital securities exchanges in Labuan and elsewhere. The equity of Sonata Capital Ltd (LL16076) has also been tokenised, and the rights to the equity is represented by the SONATA security token issued on the Ethereum network.